The Essential Skills

Vetting Vendors
Third-party consultants, contractors, and service providers have become essential in this era of increased regulation and outsourcing. And thanks to Sarbanes-Oxley, not only has "reliance on third-party vendors reached a new extreme," says Jeff Burchill, CFO of FM Global, but so has the complexity of deciding which firms to hire. In the past, the decision was based largely on who was the low bidder. But now that public-company CFOs face a potential personal liability regarding the quality of financial reporting, "price may not even come up," Burchill says. Consequently, CFOs often have to be "personally involved in the selection process," he says.

That means digging deep on references. Ideally, have a technical person on your staff find out exactly how a consultant handled, say, a software conversion at the reference's company and what complications ensued, says Bright Horizons's Boland. Then ease into the relationship slowly, signing up for only a short project to start. Build in time for unexpected problems.

Setting out detailed, measurable expectations can help guide the relationship. "You don't want to micromanage what you've outsourced, so you need to have the right reference points to measure them against," says ETS's Gatti. He recommends asking the vendor for an easy-to-read dashboard showing early warning signs for problems, along with more-detailed weekly or monthly reports.

Finally, realize that managing vendors now carries the additional burden of being responsible, at least to a degree, for the quality of their internal controls. "It's bad enough trying to monitor your own internal controls," Stephen Bainbridge, a law professor at the University of California, said at a recent symposium. But overseeing another company is "more difficult and more expensive."

Develop X-ray Vision
The CFO is in a unique position to have a window into every aspect of a company, but that's no substitute for real vision.

"We participate in or lead some of the most complex decisions an enterprise can make, so one of our jobs is to see the consequences of all those paths that others can't see," says The Hartford's Johnson. And that, says Robert Mittelstaedt, dean of Arizona State University's business school and board member at two public companies, requires being "analytic enough to constantly think about 'what-if' scenarios." After all, CFOs "are better versed than anyone about the financial implications of any of those risks," he says.

Many CFOs are analytic by nature, of course, but Johnson says that what really helps hone a CFO's powers of perception is trouble, and the more the better. "Until things go very wrong in ways that were completely unanticipated, you don't develop those skills," he says. And he should know. Having helped clean up fraud at Cendant and worked with companies in bankruptcy as an investment banker, Johnson has seen his fair share of crises. He actually reads forensic audit reports of disasters at other companies to help keep him on his toes.

Legal Ease
The last thing any company needs is a lawsuit. But in Corporate America, they come with the territory. Patent infringement, employee discrimination, workers' compensation, and, perhaps scariest of all, securities class-action cases are all a fact of life.

The real issue is risk avoidance, and there are some simple safeguards, says Cynthia Jamison, national director of CFO Services for Tatum LLC. For example, "Have routine legal forms that are used for 'usual' business [that is, customer contracts, NDAs, option agreements, and so on]. Then, whenever something is out of the ordinary, or someone requests a substantial change to normal policy, call a lawyer."

Bill Stephan, the former CFO of Harborside Healthcare, added another layer of protection. "We had a policy that no field personnel could enter into contracts." Instead, the company, an 80-location nursing-home operator, mandated that only the CFO and the in-house counsel were allowed to sign. But Stephan avoided bottlenecks by pledging to turn around any documents very quickly — often in the same day.

Having a good working relationship with your counsel — whether inside or outside — can be a safeguard in itself. In fact, says John Iino, a partner at Reed Smith LLP and co-chair of the firm's Corporate & Securities practice group, lawyers are most efficient "when they are kept close to the internal decision makers." Only then, he adds, can they help companies "draw the line between legal compliance and financial compliance" in such areas as executive-compensation disclosure. Stephan worked close enough with his inside counsel, in fact, that he became adept at spotting legal red flags.

Of course, there are times when outside counsel must be called in. This is especially true, says Jamison, "if you are in a defensive posture — say, a customer threatens to sue or you get subpoenaed for a court appearance." That's when the CFO's skills come in handier than ever. "It's just like managing anything else," says Stephan. "You want someone who is working in your best interest. And you want to avoid anyone with a tendency to overlawyer or who's just out to win points." If you don't, you'll regret it when the bills come in, he adds.

• « previous
• 1
• 2
• 3
• next »